Poveda Hayes Abogados & Solicitors is a general practice law firm focused on the diverse needs of expatriates living in the Valencia Community and on the needs of English speaking non-residents engaging in property purchases and conducting business affairs in Spain. We have offices in the heart of the city centre of Valencia and also in Jávea, Alicante, allowing us to provide services to our clients throughout the Valencia Community, both in the coastal and the interior regions, spanning from Castellón to the north and Alicante to the south. This week Poveda Hayes Abogados & Solicitors examine two important legal developments affecting home owners in the Valencia region. Should you have any enquiry in relation to the issues discussed you may contact Angel Poveda or Martin Hayes, see contact details below.

European Action Still Looming over Valencia’s

Urbanisation Laws

On the 12 of October last the European Commission issued a reasoned opinion to the Spanish government regarding the Valencia region’s Urbanisation Laws. This was effectively an ultimatum that the offending parts of the law be changed within a period of two months. The issuing of a reasoned opinion is an advanced stage of the process whereby the EU commission takes a Member State of the European Union to the European Court of Justice for an infraction of the EU treaties or the laws of the European Union. This two month deadline came and went on Tuesday last. Although some ground has been given to the EU indications are that the Valencia authorities will seek to brave the storm and resist the considerable pressure from the EU to make further changes to its highly controversial urban planning laws.

The Valencia law attracting the European Union’s attention is the Ley Urbanistica Valenciana which is commonly referred to as the LUV. The LUV was introduced last February to replace the unpopular LRAU urbanisation law that has caused much controversy over the last number of years. While the EU´s competence in the matter may be disputed, ultimately the commission of the European Union may indeed continue the process to refer Spain to the European Court of Justice as the deadline set by the Commission passes unheeded. This latest ultimatum is the second one made by

the EU against Spain regarding the LUV. On 4 April last the commission issued Spain with a letter of formal notice of infringement. This letter set out the basis upon which the new urbanisation law had not gone far enough to redress the problems with the old LRAU law particularly with regard to the EU public procurement laws.

The LUV is a complex piece of legislation that made some progress in dealing with some of the problematic provisions of the LRAU. It did make the manner by which the contracts are awarded under the law´s Urbanisation Programme´s integrated action plans (PAI) more transparent however it has failed in the Commission’s opinion to comply with the EU directives on Public procurement. The Valenician authorities contend that PAI´s do not involve public contracts falling within the scope of EU procurement laws and are presently highly reluctant to changing their urbanisation laws for a second time within 12 months.

Whilst this law has undoubtedly caused great concern to people wishing to purchase property in the Valencia region, if the proper pre-contract enquires are undertaken by an independent lawyer working on the purchaser’s behalf the pit falls of this law may be entirely avoided.

A Welcome Change to Spanish Capital Gains Tax Affects

Non-resident Home Owners

On Wednesday 29 November 2006, Spain passed an important new law on Capital Gains Tax (“CGT”). This new law includes changes to the current regime that will be welcomed by non-residents having property and other assets in Spain. The new law comes into effect in January 2007.

The change has come following a prolonged period during which the EU commission initiated proceedings aimed at getting the Spanish Government to change its taxation of non-residents.

Under the current regime non-resident vendors pay 35% CGT. Furthermore, the non-resident vendor must allow the purchaser to pay 5% of the purchase monies to the tax authorities as a retention tax. The idea behind the retention is to guarantee that all tax payments due by virtue of the vendors ownership of the property will be discharged in full. In normal circumstances vendor will be refunded part or all of the retention tax within six months to a year in accordance with the results of the assessment carried out by the authorities. The retention tax does not have to be paid where the vendor signed the escritura or title deeds of the property prior to 31 December 1986.

Under the new regime the non-resident vendor’s CGT is reduced dramatically from 35% down to 18%. Further positive news is that the non-resident tax is reduced from 5% to 3%. Meanwhile CGT for non-residents on assets other than property is now set at 24%.

It is believed that this new change to the Spanish CGT laws will spark greater movement in the Spanish overseas market.